Could Regulatory Enforcement Tighten Capacity?

Since the freight market softened in early 2022, trucking has been grasping for anything that would help the most prolonged downturn since deregulation in 1980, truly the perfect storm for motor carriers.

Yet, help may be on the way; indeed, it may be the perfect storm in reverse as 4 regulatory developments are starting to impact capacity. 

First,

on June 25, the ELP or English Language Proficiency standard took effect, and for drivers not proficient, they will be placed out of service.  Prior to enforcement, it was a bit of an unknown, but field reports are strong.  Across all 48 continental states, drivers are being placed out-of-service (OOS). 

Today, every roadside inspection follows a 2-part evaluation to determine if drivers meet ELP.  It starts with an interview in which inspectors question the driver in English about their trip, their vehicle, etc., without the aid of a language app, cue cards, or an interpreter.  If the driver passes the interview, then the inspector will check for the driver’s understanding of U.S. traffic signs.  If the driver fails either test, then the driver gets an immediate out-of-service order. 

Second,

there is a fresh push to enforce cabotage compliance by B-1 drivers.  Compliance is when a driver comes from Mexico with a U.S.-destined load, that after delivery, another load may be picked up, but so long as it is an international load.  For example, if the load came from Nuevo Laredo and was delivered in Chicago, then the next load must be destined for Mexico.  A driver may not take a domestic load from Chicago to Columbus, Ohio, even if Columbus is the origin of the international load going back to Mexico, for example.  Publicly traded motor carriers such as J.B. Hunt and Schneider, at investment conferences in June, stated they are seeing increased cabotage oversight, while many other carriers have acknowledged increased enforcement.  Matt Silver, the CEO and founder of Cargado, the only load board for U.S.-Mexican cross-border freight, posted on LinkedIn, that in the first two weeks of ELP that northbound, dry van spot loads were up almost $1 per mile, after going sideways to down for months. 

The increase in the spot rate is likely due to both the ELP mandate overall as well as a push by regulators to enforce cabotage. 

Third,

the FMCSA is starting to examine states’ issuance of CDLs and non-domiciled CDLs (Mexican B-1 visa drivers).  While states are supposed to follow FMCSA guidelines, there has not been a consistent application of how domestic CDLs and non-domiciled CDLs are issued. 

Fourth,

in April and May the FMCSA rolled out a new URS or Unified Registration System for new registrant motor carriers seeking to obtain a DOT number.  They have partnered with Idemia, a well-know identification verification company that works with thousands of companies across multiple industries.  Complaints have existed for years about the ease of obtaining DOT numbers.  In the first 16 days, 65.7% of applicants (or nearly 14,000 attempts) either failed to prove their identity or quit the application process.  Typically, the “failure rate” is 30% to 35%, so at 66%, the failure rate is up nearly 100%.  The modernization of how new motor carriers are registered should, at least partially, reduce the number of fraudulent carriers obtaining DOT numbers. Also, later this year, existing motor carriers will be required to go through the URS, so some fraudulent motor carriers will be exposed. 

Could there be more? 

Congressman Rick Crawford (R-AR) recently introduced legislation disqualifying drivers who fail a hair follicle drug test, where the failure rates are typically 5x to 8x times higher than the current urine drug test.  If enacted, this could tighten capacity. 

So what might all of this mean for capacity? 

There are about 3.6 million active CDL drivers.  If enforcement of ELP, and proper oversight of CDL and cabotage occur, then trucking capacity could potentially be reduced by 3% to 5% (or more) over the next 2-3 quarters.  Combine that with an improved URS and it appears that the 2026 outlook could be more favorable than anyone thought a month ago.  One percent is 36,000 drivers and it is not far-fetched to think that 100,000 drivers on the low end and perhaps 250,000 on the high end could be impacted. 

In Summary,

the best year in each of the past 4 cycles saw trucking capacity tighten when new regulations and/or extraordinary circumstances came along. These included a tightening of hours of service (2004 and again in 2014), 2H’17-2018 (electronic logging devices or ELDs in Dec 2017 and then the Trump Tax Cuts, 1-1-2018) and finally 2021 ($6 trillion of stimulus to combat Covid).