Trucking's Monster Jam

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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.

FedEx is a Motley Fool Stock Advisor selection, United Parcel Service is a Motley Fool Income Investor pick, Seaspanis a Motley Fool Hidden Gems pick, and the Fool owns shares of all three. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 12, 2010, at 5:37 PM, EdgeTrader2001 wrote:

    With respect to Seaspan -- let's be clear that their ships are on long-term, fixed-rate contracts by which they are paid regardless of whether there is cargo on them or not. Their revenue is nearly guaranteed with the exception of dramatic mechanical failure that takes them off hire, or counterparty risk where their customers cannot pay.

  • Report this Comment On September 13, 2010, at 8:33 AM, pl2358 wrote:

    EdgeTrader, you're right on the mark.

    Above the fact that this industry needs this regulation, it appears the author, with his tone, is condoning the practices of these companies to keep some of the drivers that will be weeded out because of the new regulations.

    I was an artillery officer in the Army for more than 12 years. There was a saying we always used to keep our units firing safely: There are two kinds of artillery units in the military: Those who have fired rounds out of safe, and those who will.

    That being said, these "safe" drivers do not meet the standard and need to go. A driver not supervising the loading of his trailer?!? Is he/she checking the trailer before leaving? If not, then he/she IS NOT SAFE. That is a vehicle around 80,000 lbs in a lot of cases, and it can't stop on a dime. If it tips over, .... Ultimately, if the driver leaves the stop with an unbalanced load, it is his/her fault because the driver has the ultimate responsibility of keeping all of us safe on the road by safely operating a safe vehicle.

    And don't even start with the drivers that have drug, alcohol, or health problems that could cause them to have an accident. There have been 3 fatal bus crashes that I know of due to alcohol, drugs, or health problems in the last 5 years. One is too many, especially when there is either no inforcement of current regulations or no regulation in place to prevent these people from getting on the road in the first place. What if a semi-trailer driver were in that condition and collided with a school bus???

    There will always be those people who think that a strict regulatory change will cause mayhem in an area of business. Maybe some of the good, out-of-work drivers who are being held out of a job due to an older, more-senior, less healthy and unfit driver will get back to work.

  • Report this Comment On September 13, 2010, at 10:32 AM, familyman62 wrote:

    pl2358, get your facts straight, if you are not in this industry you have no idea what you are talking about.

    Most trucking co's load trailers without the drivers being there this saves time when the driver gets there he can leave without waiting for it to be loaded. If it is loaded while he is present they call it a live load. Otherwise it is sealed and dropped in the yard for the driver to pick up when he arrives, drivers can't open a sealed load, there in lies the problem of holding the driver responsible for how a trailer is loaded.

    Another portion of the new rules puts points on the driver even if a drunk rear ends him, that's right the driver gets points due to no fault of his own, these are the rules I beleive are being refered to in the article.

  • Report this Comment On September 13, 2010, at 1:13 PM, GrrlGeek1968 wrote:

    Fools, if the trucking industry is short of drivers, it is because they have been foolishly cutting pay rates and raising hours. The dangers on the road come from cutting corners on maintenance, hiring the cheapest help possible, and working them to sleep.

    The free market system is broken in this country because workers have no leverage. Without a union to create a level playing field, bad companies can squeeze their drivers and other labor until they bleed, pocketing the profits.

    In economics, this is called externalizing your costs. The cost of doing business does not really reflect the cost of doing business, since much of the cost is thrown off to the society at large.

    These costs are invisible, obviously, but we all pay them, generally in blood.

    And the free market does NOT punish the offenders and reward the good companies. Union companies are shunned and dumped by investors for their "high costs".

    So much for that whole John Galt thing....

  • Report this Comment On September 16, 2010, at 1:38 PM, misahap wrote:

    I would like to know if it is true that companies use just graduated drivers to "team" with a trainer and then when they are done with the company trainer, there is no more loads for them, or they get sent home for some reason.

    Also, I think there should be some kind of rules or regulations for Truck driving schools to be accountable for, not just train every tom dick and harry that comes through the door.

  • Report this Comment On October 17, 2010, at 7:48 AM, lcmesquita3206 wrote:

    The author assumes without giving any logical reasons that safety regulations will cause a bottleneck in trucking. As usual businesses always claim that any government regulations to improve safety will kill the industry.

    For years US car companies used to claim that increasing fuel mileage would make cars unsafe or that higher mileage is technologically impossible. Japanese automakers proved these claims to be wrong.

    Safety regulations will get rid of unsafe drivers and attract safe drivers, through the mechanism of a better pay structure. In the absence of regulations any one cutting corners is able to provide services at a cheaper rate compared to those who follow some safety standards. It is for this very same reason, that Chinese manufacturers are able to beat their American counterparts on price as the Chinese do not have to worry about any environmental, safety or labor regulations.

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