Government Regulation and Your Supply Chain
This article was originally published in the third quarter issue of The Illinois Manufacturer
The COVID-19 pandemic illuminated the importance of the transportation industry to the United States economy. Shutdowns at manufacturing facilities, backlogs at ports and warehousing facilities, and a shortage of drivers and other transportation workers disrupted supply chains throughout the US. This unique swirl of events created more shortages in the workforce and caused rates to skyrocket.
But disruption in the logistics industry and the supply chain is nothing new. With 70% of all goods in the US moved by truck, it doesn’t take much to create a ripple effect. Like the COVID-19 pandemic, government regulations (or deregulation for that matter) can upend the transportation space. And when this happens, manufacturers are faced with truck capacity shortages, excessive rates, and shoddy service.
Brief history of deregulation.
Consider briefly, the Motor Carrier Act of 1980 which made it easier for truckers to secure certificates of public convenience and necessity and required the ICC to eliminate most restrictions concerning commodities, routes, and geographical regions. In addition, the law allowed trucking companies to “price freely within a zone of reasonableness” which, simply put, means they could increase or decrease rates by 15%.
This deregulation changed the industry. Rates fell. Trucking companies were better able to negotiate rates and services, experiment with new prices, and restructure routes, reducing empty return hauls. At the same time, shippers were able to work with third-party-logistics providers who were able to negotiate better rates and secure predictable capacity.
As deregulation strengthened the logistics landscape, it also improved service to smaller communities. Most experts would agree that deregulation in the 1980s and 1990s created a more flexible logistics environment with a wider variety of carriers and 3PLs able to provide manufacturers with enhanced service and better rates.
In recent years, however, we’ve seen some new regulations impact the transportation industry.
One such example of this is the implementation of the ELD-Rule.
Electronic Logging Devices (ELD) are, simply put, electronic logbooks that include hardware connected to the electronic control module of the truck’s engine. This device tracks drive time and stores the record of duty status (RODS) as well as monitors drive time and hours of service (HOS) compliance.
In February of 2016, carriers or drivers were able to begin using registered ELDS, and by December 16, 2019, all carriers and drivers subject to the rule were required to be using a certified ELD. ELDs record the date, time, and location. They monitor engine hours, miles driven and identifying information of the driver, motor carrier, and vehicle. They also record duty status which records vehicle movement whether or not the driver is on or off duty.
Before the rule went into effect, many experts believed the rule would create skyrocketing rates and lots of disruption. Rather than completely change the landscape of trucking, it created a ripple effect for manufacturers and distributors because it limited drive time for trucks.
Before the ELD-Rule, shippers were able to hold drivers well-beyond their appointment or delivery times without paying much of a penalty. In this new environment, shippers were forced to be more timely in loading and unloading trucks. Attaining Shipper of Choice status became an important requirement for manufacturers in need of excellent carriers during times of tight capacity. Manufacturers unable or unwilling to stick to appointment or delivery times found trucks hard to find or too expensive to hire.
What does the future hold?
Due to unprecedented disruption in the supply chain over the last two years, President Biden has created a Supply Chain Disruption Task Force. While experts are unsure what this will mean for the trucking and freight brokerage industry and for the manufacturers they serve, we can expect new regulations that will most likely affect both rates and service going forward.
In order to navigate this ongoing disruption while creating more resilient supply chains, smart manufacturers will consider outsourcing some of all of their logistics to forward-thinking 3PLs. Third-Party-Logistics providers have access to superior carriers, use premium technology, and provide transparency and communication. But partnering with a 3PL gives manufacturers the added advantage of working with savvy industry experts who engage in government advocacy intended to benefit the manufacturers they serve in the logistics marketplace.