The introduction of the drug and alcohol clearinghouse in January 2020 is going to have a bigger impact on truck capacity than the recent implementation of the electronic logging device (ELD) rule, according to Eric Fuller.
Fuller, the CEO of U.S. Xpress (NYSE: USX), made the remarks on a panel at the Wolfe Research Global Transportation Conference in New York Tuesday. Fuller was on a trucking panel with other CEOs from companies such as Covenant Transport Services (NASDAQ: CVTI) and Marten Transport (NASDAQ: MRTN). But USX was the only company that allowed a webcast of its CEO's remarks.
"I have a strong opinion on the drug clearinghouse," Fuller said. "It's going to take 10 percent of capacity out of the market."
Fuller said the market's failure rate for urine testing is about 3 percent, with larger carriers having a higher rate and smaller carriers coming in with a lower one. "There are people who will fail a drug test one place and then pass others," he said. But if that failure gets into a database that can then be accessed by potential employers, the number of drivers who would be considered unfit for hiring would rise, he said.
Fuller expressed skepticism about the projected launch of the clearinghouse, noting that when it sets targets, the Federal Motor Carrier Safety Administration (FMCSA) "[doesn't] hit anything, so I am very skeptical" of the January 1 launch date. "It could take 12 to 18 months before you've got a full database," he said.
He also reiterated the US Xpress view that the industry needs to turn to follicle testing as a more accurate way of testing for drugs, "because we'll be catching more of the habitual users, and the whole industry needs to do that."
According to FMCSA, under the clearinghouse, employers need to forward to the database several types of violations: an alcohol test where the driver has a blood alcohol content of 0.04 percent or more; a "negative return-to-duty" result; driver refusal to submit to a test; an "actual knowledge" violation, in which the company knows that there's been alcohol or drug abuse by a driver even without any formal test; and the completion of follow-up tests after earlier violations.
The information is to be accessed by any company considering the hiring of a driver. It would not contain the result of drug and alcohol tests administered prior to the launch of the database. So if a driver doesn't have any violations and isn't changing jobs, he/she wouldn't need to be in the database. (Even if a driver has no violations, if the driver leaves a job after January 1, he/she would need a record in the database for their next hire.)
The nature of the panel's format and the fact that Fuller was the only panelist to have his comments publicly available means that his other comments could not go into great detail. But he did make several other key points during the session.
– US Xpress is "right at" 50 percent of its contract renewals for the year, an aggregate of both over-the-road and dedicated customers. The average increase achieved so far is 5 percent, Fuller said. But more recent renewals were "more in the low single digits," he said, "whereas in the beginning of the year it was closer to a 6, 7 or 8 percent range." Fuller said, "When it all shakes out," the average for the year will be mid-single digits.
But within those company-wide numbers is significant divergence, Fuller said. Over-the-road contract business is "flat to a bit negative," Fuller explained, but the company's dedicated division has had "pretty significant increases on a year-over-year basis."
US Express' exposure to the spot market is consistently around 10 percent he said. Rates in that business are down about 25 percent to 30 percent year-over-year.
– US Xpress' dedicated division is about 43 percent of total revenue, "and we would like it to be 50 percent," Fuller said. The big swing in markets from last year to this year has created opportunities, he added. In the midst of the 2018 bull freight market, Fuller said, some carriers were "a little cautious" in adding new dedicated capacity, preferring to play in the strong over-the-road and spot markets. As a result, according to Fuller, many USX customers brought in new dedicated carriers, "and what we're seeing is they are finding less success with their new customer base. The one positive is we have opportunities from those who grew their dedicated accounts that they are wanting us to take back over a good bit of that capacity from new entrants." USX can grow another 10 percent to 15 percent in its dedicated division "if we can find the capacity to do so," Fuller added.
– The winter weather was "incredibly impactful" and USX is seeing a "much weaker than typical May," Fuller said. "It still seems a little anemic." One of the reasons for that besides weather has been capacity. He estimates that supply last year in the midst of the strong 2018 market rose "to the tune of" 30,000 to 40,000 trucks, "and some of that has to get bled out." "We see some anecdotal evidence that some of that capacity is coming out of the market, but I think more has to come out for us to feel better about the market," Fuller said.
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