Episode 026: Regulation & Its Impact on Fleet

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Welcome back for another episode of the Fleet Success Show. Glad to have with me again Steve Salsgiver.

Hey there.

Jeff Jenkins.

How's it going?

Good, good, good. All right.

So today is— this is probably the most exciting topic I think we've ever talked about.

Wow.

You just set the bar right there.

Dropping it right now. Like, this is going to be amazing. Regulation.

Don't drop the ball.

Everybody likes talking about regulation.

Oh, that government.

Right? So today we wanted to talk a little bit about regulation, its effect on fleet, things that you should be aware of, things you should be looking at. Keeping an eye on. You know, obviously regulations everywhere we go, but in fleet, you know, depending on the fleet, it definitely has a bigger impact than other areas. So Jeff, obviously in trucking, you know, trucking companies are very aware of regulations since it's impacted them a lot. They have a whole agency dedicated just to them.

Mm-hmm.

But Steve, you know, one of the things that we'll talk about as we go through the episode a little bit is how it's bigger than just trucking and how regulations affect all fleets.

Yeah.

So Jeff, lead us off. I mean, regulation, trucking, like what should trucking companies be doing? What should they be looking at? What are some common things that they are going to run into?

Well, here's the funny thing about trucking, right, is— and you'll find out most truckers feel they're overregulated, which I won't necessarily disagree, but the hours of service. I mean, how many times have the hours of service changed just based on some study that someone did? Used to be you could do split, split sleeper berth, and they took it away, and then you had to rest for 11 hours and then 10 hours, and you know, you have to take a 30-minute consecutive break. I mean, the hours of service is just weird. Uh, I, I think the opinion of most is like there's no actual good data behind a lot of those rules when it comes to those regulations, uh, but the government does stuff just, I think, to do stuff at times.

Well, I just read an article about that. Over all the time they put in all these FMCSA guidelines, the intent was to reduce fatalities and accidents. And guess what's never happened?

Fatalities. It still goes up.

It still goes up. It's never mitigated it. So that in itself is kind of an irony, right?

Like population is—

No, I think it's normalized.

Drivers. It's normalized and it's still increasing.

It's still increasing.

And I don't think it's because of population or drivers. I just think it's because there's more distractions on the road. And because there's more distractions with cell phones or whatever else is going on, while those numbers can go down, they typically don't because of what's out there, you know, but not only hours of service, but also, you know, when it comes to DOT, there's, you know, the CSA scores and how— which no idea what talking heads got together to figure out CSA scores because a driver gets a violation, that driver's violation goes on their record for several years and it also goes on the truck trucking company's record for several years. And even if you fire that driver because of unsafe or whatever the case may be on CSA, it doesn't matter. It still stays on your scores. So even if you make the right adjustments, if you make a bad hire, no matter what you did to go through the right process, it's still gonna hit you. And then they've got you weighed against companies that are, you know, in quotes, your size or like. Well, the problem is, is that there's a company that's got 5 trucks that's now in the same group of a company that's got 250 trucks. And now you're graded against that 5-truck carrier as a 250-truck carrier, and you've got a lot more issues you can have with 250 trucks.

There's a lot more exposure.

Yes, absolutely, than with just 5. So it's, you know, there's a lot of different things I think that really screw up, and which confuses the truckers because they're like, wait a second, this doesn't make any sense. But unfortunately, it's the federal government, so you got to go through.

I think I think they give you an out on that. You know, I mean, you have the process to do a data queue and try and get that purged from your record, but I think it's underused. I think it's bureaucratic and a lot of people don't understand it. You know, in other words, you can get stuff expunged, but you have to know what you're doing to have that happen.

Well, but in a lot of cases it doesn't get expunged and that's part of the problem. And not only does it not get expunged, but the process to go through and get it expunged.

Oh yeah, it's onerous.

Yeah, it's very, very long. And really it's just someone's opinion. Oh, okay, yes. Or, oh, okay, no. Right? So there's no set, clear, defined rules.

It is complicated.

It's very, very complicated.

We figured at Republic when I was there, somewhere around 6% of our costs were due to regulatory, somewhere in that neighborhood.

Just state compliance?

Just compliance. And that was emissions only. I'm not talking about this other stuff. But in 2010, our costs went up almost 6 to 10% just for compliance with emissions.

Wow.

Yeah. So it can be costly, this regulation, to a business.

Well, yeah.

So I think that's one of the key things too, you know, like regulation and trucking, but like emissions regulations hit every single—

CAFE standards, right?

As long as it's a diesel engine. Yep. Yep.

Diesel engines, but they're also, you know, mandating for the OEMs. And so we're seeing that push too. You're seeing all these model years coming out and trim levels where like they're really pushing the OEMs to have more fuel-efficient vehicles and things of that that nature, which is, you know, it's good. We want more efficiency. You know, but they're also, because of some of the things that they have to sacrifice to get there, it's, you know, it's interesting how it's impacting every fleet because of those things.

Well, just look at the car prices, right?

Right.

Over the last 10, 20 years. I mean, they've, I mean, I just bought a car now. It cost almost as much or more than my first house, you know, and that's less than 20 years ago.

Yeah.

Well, and you could say that's inflation, but a lot of that has to do with government regulation. Oh, I'll be honest. All the requirements for that vehicle. Exactly. And I get there's a lot of things that make us safer, right? And that's not a bad thing to make us safer. But let the market figure that out.

Yeah.

Don't force me to do it. You talked about when the emissions came out. Geez, any year model truck in 2010 was terrible. It was the worst truck because it always had these regen issues. You didn't know what was wrong. Like, there wasn't— everyone was trying to hurry up and shove through these emissions-friendly engines. With the DEF systems so they wouldn't get penalized by the government. So they wouldn't get penalized, but they didn't test it, right? There wasn't enough testing because anybody that tested it found out that after about 5,000 miles, you were going to have regen issues.

Yep.

And then you would have them constantly. We had half of our fleet of those new trucks that were down at any given time just with the DEF systems.

I had dispatchers in tears.

Oh, I doubt it. Yeah, because you couldn't do anything about it. You're getting yelled at by— yeah, you're getting yelled at by customer service, whatever, because your loads aren't on time. But the problem is I've got a broke-down truck. We'll put them in a new one. Well, half my trucks are broke down.

And then you got to go buy more trucks and those are crappy. Yeah, it's just a never-ending—

That was a bad year.

But they got through it.

Yeah, we did. You know, and that's part of the government regulation. Sometimes they don't give you a big enough window for compliance. They try and force that and give you a really aggressive goal, you know, to get there. And sometimes it's just not doable, you know, or they drag their feet and don't move. I mean, whatever the case may be, but—

Right, well, that was kind of the case with ELDs, right? Another regulation. Yeah, so when ELDs came out, right, I mean, we actually had 18 months to get ELDs from the time they said it's going to be mandated to not mandated. But the problem is they gave all these exemptions to different classifications, right? If you're a single truck carrier, or if your truck is older than X, or whatever the case may be. Well, that's, that's, that's all well and good, I guess, but not everyone's compliant. Yeah, so you know what we did? We went out and we bought glider trucks so you didn't have to go in and you didn't have to have that because your truck model was older than what the regulation stated. Now they fixed that, right? Now everybody has to have an ELD. But when it first came out, it wasn't across the board. And the big trucking companies, they'd already implemented this. So here's a little, little learning, right? It wasn't necessarily for safety reasons, but if they got in trouble when it came to a DOT audit, one of the things the government would suggest is that they get ELDs in all their trucks. And so you would pass your DOT audit if you were close to failing it, if you put ELD trucks, right? If you had false logs and all this other stuff, right, when they went through their audits. So these big trucking companies, they went in as a way to kind of skirt that issue. Okay, we'll go get ELDs. Well, they were lobbying hard for ELDs for everybody because they wanted to level the playing field. Right now, you had someone on paper logs who could run farther in a day than someone that was on electronic logs. And so they were like, no, no, no, this isn't fair because now we have these ELDs, we can't run as much where we used to be able to run 600 miles a day. Now we can only run 450 and it's hurting our bottom line. So let's hurry up and lobby the federal government to make everybody do the exact same thing.

Yeah. Well, even now today, the ELD is still not settled in Canada, right? They don't even have one that's certified. And so they're taking a progressive approach to basically say, you all got to have an ELD, but we're not going to penalize you for the next year.

Well, that was funny to me too, which makes sense. Yeah. They created the mandate, but then they didn't certify anybody to, you know, solve it.

Crazy.

Of course, if you were that first company that had a certified ELD, Yeah, you're rolling in the boat. That's all.

Well, and, and hundreds of them popped up.

Oh yeah, that's the other thing.

Hundreds of companies popped up saying they were certified ELD, and you know, half of them went out of business. More than half of them went out of business in the rain.

Yeah, I talk about that all the time, right? Here in Arizona, the rain comes and the weeds pop up, and 2 weeks later they're all brown and dead because, you know, that's exactly what I saw happen with ELDs.

Oh, Telematics, right? Yep.

So, so what are some of the regulations that are affecting kind of industry-wide? I mean, we talk about EVs, you know, I know California is really pushing their fleets all to be 100% electric by— what was it? What was the year on that one? Is it 2025?

2025, I think.

Yeah, 2025. Yeah. You know, how does a fleet cope with things like that? When— how do they stay apprised of that? How to make sure that they're in the know when either their state or federal governments are imposing mandates or imposing regulations that they may not know about.

You know, the real difficulty, I think, is being a former fleet manager is you never have the money to buy those. And so you're heavily dependent on government grants.

Yep.

Or, and it's really, if you're in the corporate and you can justify it with some kind of ROI or maybe even a hurdle rate, you know, an IRR, something that gets you there, potentially you could do it. But bottom line is you really can't keep up with the fleet because you can't replace because you have to expend so much money. So then your fleet gets older. And the irony of that is the older trucks are the polluters, right?

If you adjust your trucks with newer gas engines.

Yeah.

Right.

Somehow they need to write those regulations so you don't buy electric vehicles or CNG vehicles, but you actually displace the fuel. In other words, you know, you get rid of fossil fuel and you do have to do electric because there's no incentive otherwise. I remember when they did the EPAct years ago, they based it on how many widgets you bought or vehicles, and everybody bought dual fuels and still use fossil fuel, so it didn't even matter, you know. So the government sometimes has to rethink their, their process, you know. And that's what we're going through right now is they haven't quite got this sorted out because first of all, there's no infrastructure. So imagine if all of California that's currently going through rolling brownouts, everybody gets on electric vehicles. They're not even gonna be able to charge and move. It's just crazy what's going on.

So what you remember when like the everyone had to be, you know, California carbon emission certified? Yeah. When that came out several years ago, what did, what did California do? Well, they, they gave money, right? To some of these owner operators, trucking companies to upgrade their fleets to where they were more emissions friendly. Now California's broke, they don't have any money, right? They're going to keep printing it or taking it or whatever the case may be, but it's going to be the same thing if they end up saying, okay, by 2025, right, well, we'll have to give some grants or do some things to help people upgrade their fleets. They're already seeing a huge shortage in shipping right now. There's like 40-something cargo container ships waiting.

65, that's what I said.

There you go. Okay, 65. What was this? Like 2 weeks ago I looked.

It's crazy.

So the 65 cargo container ships, right, you got to figure one truck per per container when it comes off, and there's what, hundreds on those container ships?

Thousands.

Yeah, a lot of that is because of the backup, because of all the regulations they're throwing, especially on their port and their dredge drivers, the owner-operator issues where they're trying to regulate and say, hey, you can't be an owner-operator anymore, you got to go and, you know, be classified as an employee, or whatever the case may end up being. You'll continue to see that, and it'll get worse and worse because the more regulation you throw on people, especially expensive regulation the less likely you're going to have people participating in those industries anymore. And so all they're doing is shooting themselves in the foot.

Well, there's a lot of companies that refuse to even drive into California anymore because of all the diesel regulations.

Well, you're absolutely right. Like USA Truck, they don't send their trucks to California, and it's because of that, those issues, because of the regulations. Knight, they pulled their terminals out of, out of California because of the regulations. Now, a lot of this had to do with like some of the worker regulations that they had. But there's even companies that won't even hire drivers that live in California because of all those rules and regulations and the different things that you have to follow when it comes to states like that. Now, I'm saying California because we're on the West Coast, right? But I mean, there's a lot of other states that are the exact same in the East Coast, right? New Jersey is pretty bad when it comes to some of that regulation.

New York—

I mean, just a lot of these states, they're just trying this overreach, and it's really affecting these businesses.

When you think about right now with all the supply chain shortages we're having that probably are sitting out there in the ocean somewhere in the port ready to come in, but we have no one to move it. Right.

You know, well, I heard— so what I think my mom said to me, she's like, I just heard we better do our Christmas shopping right now because the closer it gets to Christmas, the less stuff there's going to be because of all those ships sitting in the port.

They really— they're telling you that?

Yeah, that's what I read. Of course, you know, I would tell you as just a word of advice anyways, it's September, you should have your Christmas shopping done anyway.

Listen, this is why we go on a trip at Christmas. I don't have to buy the crap. Don't bother with anything.

Um, so obviously we've got, you know, we talk a little about EV. OSHA has definitely been in the news a lot lately. I know that's the vehicle that the vaccine mandates are trying to come through. Um, you know, who knows what's going to happen with that, but 27 states already are pushing back on that. Yeah, who knows if they've got a leg to stand on, but the idea here though is that, you know, OSHA does get involved. You do have to make sure that you have a safe workplace. As much as we want to, you know, as we rail against some of the regulations that we do see, there are some that have helped. You know, OSHA's done a somewhat fair job. I'll give them a little bit of a handshake, but backhanded handshake.

I would say one thing that's really underused are the government agencies are people and they're generally willing to come help you if you have a legitimate question. Or I mean, I used to bring OSHA into our shop and they would do a free inspection. Yeah. For example, they show us where we're a little bit deficient in case they popped in one day, we could prepare for that. FMCSA will do the same thing. So will the CHIPS in California. They'll come in and do a mock bid inspection. So a lot of these government agencies, you can use them to your advantage, and I think it is to your advantage to create some kind of a positive partnership with them.

Well, it's a— it's to your advantage in case you ever do get audited, right? In case you ever get inspected. But it's also to the advantage of, well, let's use, you know, if there's a regulation out there about the bin inspection, well, what's the point of that inspection? Is to make sure that we're doing our things correctly, right? Well, let's bring them in here and let's just verify where we're at. Let's do a quick litmus test, see how we're doing. Let's bring OSHA in. If you're not operating safely, you know, we talk about risk management being one of the pillars of success. If you're not operating safely or there's hazards that you don't know about, they're in your blind spot, I would love to have an OSHA person come in, help me see that. Okay, well, I'm really glad you showed that to me. Let's go and make that safer. What if you avoid an accident because you did that? It's proactive, right? That's exactly how we define risk management as a pillar, is proactively identifying and mitigating threats. And I think that's a great way to proactively reach out. You know, you do that, I know in like SaaS companies, you're supposed to do that with your financials. You bring in a financial auditor. And they audit your finances and they review them and they ask questions. And by asking those questions, it forces you to come up with best policies and practices to make sure that in the event anything ever happens, you know, you get audited by the IRS or whatever, your ducks are in a row and you're ready to go for that.

I think that the intent is always good.

Yeah.

I mean, even the intent of all these government regulations usually comes from a good spot. It's just the way sometimes the bureaucratic red tape gets involved in it. It starts to become very, very costly.

It loses its soul.

Well, I don't think they always— I mean, they have a process where stakeholders are able to weigh in on this. I mean, think about Jeff said, the HOS. We all weighed in on that if you were a significant company.

Oh yeah, the lobbyists.

Yeah, but ultimately they do what they're going to do on that one anyway because of the—

Well, and you know, whether it's OSHA or anything else, I agree with you. I think that the intent is good, but then the overreach, right? So you set some things in place and then all of a sudden you go way too drastic. And you don't let the free market dictate what's going to happen. So OSHA— OSHA was set up for a very good reason, right? And it was for worker safety, to make sure—

safety.

Yeah, absolutely, for workplace safety. And, you know, it's prevented probably thousands of deaths by having OSHA regulations that are at locations that need it. Um, but then they keep going, yep, and they keep going and they keep going, and it ends up being more costly, which means, you know, goods and services are more expensive. And so, you know, You're right, the intent's good, but at some point you have to sit back and be like, okay, we're gonna stop.

We created a monster, right?

Yes, because we all know, right, you give the government power, they're never gonna give it back. They're gonna keep taking more and more and more, and that's what we've seen.

Yep. Well, yeah, I mean, the last administration, well, you couldn't write a regulation unless they got rid of a regulation. So I mean, there is ways you can do that, but I think if you're just generally in that job, you kind of take it upon yourself as, the owner of that job to create regulations. It's almost a self-perpetuating process.

Yeah, I mean, if you got rid of OSHA, right, there'd be a lot of companies that did not follow OSHA regulations. There'd be a lot of, I mean, on any of these, right? DOT, whatever. There'd be a lot of companies that wouldn't follow these regulations. But what would end up happening is that the people would probably die, right? Which is a bad thing. I think we'll all agree on that. But those companies will go out of business.

Yeah.

And then the smart companies who are still following the guidelines, still practicing safety, still practicing risk management, they'll flourish and they'll become more successful. So at some point, you know, the market will adjust, adjust and allow, you know, the good companies to succeed and the poor companies to not.

It's interesting you say it like that. It almost makes it sound like, you know, the, the government bureaucracy is actually keeping crappy companies alive.

Wait a minute, what?

Like it's floating. It's exactly what's happening because we're, we're allowed to be mediocre. Yeah, well, we're only going to do the bare minimum. Well, the bare minimum is here, you know. And so it's kind of funny you think about it that way.

Well, it's very true though.

Yeah, that's, you know, I hate to say that, but every time the government gets into anything, they bring everything to mediocre. I mean, think about education, right?

We can't really talk about education here in Arizona. We got no legs to stand on here. Uh, all right, so any other, any other thoughts you guys have other than, uh, you know, beyond us just bashing on the government, you know?

Uh, well, I can, I can, I can bash a lot harder than I have. So we've been pretty tame at this point. We don't really have the most competent government.

All right, well, uh, that, uh, silence tells me that, uh, we're reaching the end of the episode here.

I just don't want to get audited, right? So I better just— we better just stop this right now.

Like, seriously, they're coming after me.

The IRS poking around here.

Well, because I'll tell you what happens with an IRS audit, right? I have the privilege of knowing several auditors, or at least one, and he's like, "We've got one job, and any audit we do, we always have to find at least one thing." Yeah. Right? And so it doesn't matter how squeaky clean your books are, right? We have to find one thing. I remember, you know, we got audited probably several years ago, and since that audit, we've never been able to have a Christmas party the way that we used to. We used to do these big things, you know, it was like a raffle and, you know, there's drawings and gifts and TVs and vacations. No more, 'cause the IRS is the no fun league.

I can tell you the same thing happens with DOT roadside inspectors. Yeah. They have to find something.

They have to find something.

They have to find something.

And no matter how ticky tack it is.

It could be the squeaky clean fleet, but they will find something.

They have to.

Yeah.

Because the government just buys their existence.

Yep.

So it is much, you know, it is better to be proactive so that whatever they do have to find, hopefully it's really small, like not classifying your gifts as a taxable income item, right? Or, you know, it's something as simple as like maybe a turn signal's out or, you know, your mud flap's not high enough or something.

Hopefully it's something that they don't take you out of service for.

Right.

That's the main issue. Yep.

So.

A chafed hose.

Right. Yeah. We can deal with that. Thank you. So with that, any questions, comments? If you totally think we're off the rails, email us podcast@rtafleet.com. Or if you love everything that we said today and you're a fellow like-minded thinker, email podcast@rtafleet.com. Again, tell all your friends about Fleet Success Show and we'll be seeing you online, LinkedIn, Facebook, Twitter, and we will see you next time.

'Murica!

Till next time.

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